Driven by the strong growth of the financial sector, Manhattan office vacancies are going down and rents are going up, according to year-end statistics recently released by Cushman and Wakefield.
“On one hand, it's more expensive than ever to operate a business in Manhattan,” said Joe Harbert, the chief operating officer for the New York area. “On the flip side, more businesses have indicated an ability and willingness to pay this premium, as vacancy across Manhattan continues to decrease.”
According to the brokerage firm, average office rents in Manhattan rose to $50.56 per square foot in 2006, an increase of 25 percent from the end of last year. And in the top-tier neighborhoods, 41 leases were signed at prices exceeding $100 per square foot—three times as many as 2005. Cushman concludes much of this was driven by the robust financial services sector.
Investors are feeling good about prime New York real estate, too. The total value of investment sales in 2006 was almost $30 billion (€39 billion), a jump from the $20 billion in sales in 2005 and $15 billion in 2004. Around 62 percent of the sales in 2006, or $18.5 billion, were acquired by private investors. And the market shows no sign of cooling down.
“With more than $20 billion of transactions currently under contract, we believe in 2007 the momentum will continue,” Harbert said.
The other significant story in the statistics was the resurgence of the downtown market. Leasing activity at the Southern tip of Manhattan totaled more than 5.6 million square feet in 2006—the highest since the terrorist attack on the World Trade Center and a 64 percent increase over 2005.
Cushman also said the hotel market was seeing high occupancy, while high construction and land costs were limiting new stock from coming onto the market. Other than the new Javits Convention Center Hotel, Harbert says, most planned hotels are of the boutique variety and have less than 200 rooms.
In retail, Upper Fifth Avenue remained the most expensive retail address in the world, while Gucci paid what is believed to be the highest retail rent ever for its space in Trump Tower.
“Luxury retail goes hand-in-hand with the new high-end residential units and will certainly benefit from the ongoing strength of the financial services sector,” Harbert said.
Phoenix closes on $176m for urban property
New York-based Phoenix Realty Group has raised $176 million (€136 million) for two funds dedicated to urban investing. The firm's Metropolitan Workforce Housing Fund, which has a $250 million target, has so far received $96 million in capital, while the Genesis Workforce Housing Fund II has received $80 million in commitments from a number of Los Angeles-area pension funds and has a target of $175 million. They will both focus on market-rate housing, mixed-use and revitalization projects in urban and urban in-fill locations. The Genesis fund will focus on residential and urban retail in the Los Angeles area, while the Metropolitan Workforce fund will invest in residential and commercial properties in New York, New Jersey and Connecticut. Both funds are expecting a final close by March of this year.
Equity International closes third fund on $300m
Chicago real estate investor Sam Zell's emerging markets investment firm, Equity International, has closed its third private equity real estate vehicle, EI Fund III, on $300 million (€230 million). The fund series largely focuses on real estate-related operating companies outside the US, particularly in emerging markets like Brazil and Mexico. The firm took Mexican builder Homex public in a 2004 IPO and recently did the same with Brazilian company Gafisa, which went public early last year. The firm has also made recent inroads in China and Egypt. The first fund in the series closed in 1999 on $370 million, while the firm's second vehicle closed on $300 million in 2006.
Broadway raises $590m for second fund
Broadway Partners has closed its second private equity real estate fund on $590 million (€445 million), nearly three times the size of its previous vehicle. Fundraising began last fall and more than half the total capital was in place by August. The firm has already closed on three assets for the fund, including the landmark Rookery building in Chicago, 10 Post Office Square in Boston and 522 Fifth Avenue in New York. In October, the firm acquired a 10-building portfolio of office buildings in major US cities for $3.4 billion. Broadway closed its first fund on $210 million in 2005.
Pensions continue to look to real estate
Slightly less than one-third of corporate and public pension funds plan to increase their commitments to private equity real estate funds, according to a new report. The JP Morgan Asset Management Survey noted that real estate remains popular with pension funds. The asset class will lose a relatively small amount from pension funds: only 1 percent of corporate funds and 2 percent of public funds will decrease their allocations to the sector, while 11 percent of corporate pensions and 28 percent of public pensions will increase their commitments. The move comes as fund managers are increasingly shifting their allocations to higher-return asset classes in an effort to close their funding gaps.